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Why We Aren’t Paying Off the Mortgage Too Early

Mortgage payoffAfter paying off our credit cards, we needed a new debt goal to focus on. When you pay off a bunch of debt, it makes you feel like you can do anything, so we set out to pay off our mortgage early. The idea of living in a completely paid for home is super appealing, however, after looking at 2013 and beyond, we’ve decided that maybe putting all our energy into the mortgage payoff is not the best use of our money. Yep, we’ve flip flopped like a politician, and here’s why.

It makes more sense to invest in my solo 401k

After selling my practice, I set up a solo 401k through Vanguard. The costs are very low, and the interest over time should be much greater than the guaranteed 3.25% (current mortgage rate) we’ll get from paying off our mortgage.

It will also save a ton in taxes. If I can invest most of my 1099 income, it will decrease our tax bill by thousands of dollars. We can use Jim’s and my W2 income for living expenses.

We Have Rentals

With purchasing a commercial building at the end of last year, we now have more potential expenses. This purchase also has a very short loan term of 6 years, so that means  the payment is pretty high. Because of this, we feel the need to keep more than is usually recommended in savings. If we are making huge mortgage payments, our liquid cash is gone. Sure we could take out a home equity loan, but that sort of defeats the purpose. Down the road as we pay off this property, we might reconsider, but for now, it makes sense to stockpile our savings.

We Will Be Working for at Least 11 More Years Anyway

Our current loan has 11 years left on the term if we make the minimum payments. Jim will be eligible for his pension at age 55, which is 11 years away. He is really enjoying his new job and the flexibility and challenges it has added to his career, so he is in no hurry to retire. If he hated it, I wouldn’t want him to stick around for the pension, but since he doesn’t, it seems wasteful not to take advantage. After 11 years, the longer he works, the more his pension grows, so he might not be ready to retire then either.

I can see myself working for at least another 10 years in optometry, possibly longer if I feel useful and enjoy it. While we can still bring in pretty good incomes, there is no real hurry to pay off the mortgage.

We Can Still Pay Extra Toward Our Mortgage

From day one, we’ve always made an extra mortgage payment each year. We divide the monthly amount by 12 and add that to each month’s payment. When I decided to pay myself to be the maid, I started putting that money toward the mortgage as well. All in all, we are now adding $350 per month toward mortgage principal. By doing this, we will have the whole thing paid off in 8 years, three years before our original payoff date. It’s not as glamorous as 4 or 5 years, but it makes the most sense right now.

The important thing about personal finance is that is is personal for you. Whatever you decide to do with your money is your decision alone. I would never fault anyone for paying off a mortgage early or deciding not to. In a perfect world, we’d have enough money to never need a mortgage, but for most of us that isn’t reality. We have to make choices on how to use our money in ways that make the most sense, even if that means changing our minds.

Have you flip flopped on any financial plans this year?

Image: Freedigitalphotos.net/Krisnan

About Kim Parr

Kim Parr is a private practice optometrist, freelance writer, and personal financial blogger. You can follow her journey to 20/20 financial vision at Eyes on the Dollar.


  1. This sounds like a great plan for you guys, Kim. You’ve researched every aspect, analyzed and figured out what the best way is for you to go – great job! Our main financial flip flop this year was that we had planned to ease up on our strict budget after a year of really trying hard, but we were so motivated by the results that we’ve decided to cut our budget even further, trying to live on even less than we did last year. So far it’s going great!

  2. We haven’t flip flopped on anything yet this year, but it’s still early in 2014! Situations change and it’s often better to go with the flow and adapt to a new situation (like the sale of your business finally happening) than to fight it and stick to the original plan just because it was best for the old situation. =)

    • I think I tried to stick to the status quo for so long that I am not bothered by changing my mind as long as it’s for a good reason.

  3. Our big financial flip flop in the last few months is that we have decided to forget about saving up for another rental property at this time and focus on paying off our student loans (which are locked at low interest rates) instead. I’m glad to know we’re not the only ones having major shifts in our financial strategy! We can’t wait to be rid of the student loans!!

  4. I actually don’t plan on putting any extra money towards our mortgage. We got in at a 3.25% interest rate and I can’t help but think that investing that money elsewhere versus paying down our mortgage will be better off for us long-term.

  5. I keep my mortgage as well as it is covered by rentals and the rate is super low. On the main house though I paid cash and it is not a smart financial move but I like knowing that I don’t owe on my house.

  6. We are trying to decide on this now since we have a new mortgage starting on March 1st. I think our plans will change somewhat. If nothing changes with Obamacare then we will probably need to max out both of our retirements to get our income under 94K for a subsidy. If we do that, I’m not sure that we’ll pay huge house payments, although we will always pay above the minimum.

    • Our accountant has told me that if we contribute like we have planned, we can get our MAGI to around 90K, which still doesn’t get a subsidy for 3 or us, but at long as I could join Jim’s plan for a zillion dollars, we don’t qualify anyway. However, we will pay so much less in taxes, it’s worth it. I’d rather keep paying on my house than give away more money to Uncle Sam.

      • There are 4 of us so our threshold is 94K or less. We can get there if we max out retirement and possibly put some money in our health savings account. Making 95K gets us no subsidy. Making 94K gets us something like a $378 per month subsidy. Crazy!

  7. I think I’d be doing the same exact thing Kim, especially with the ability to contribute so much to your solo 401k and lowering your taxable liability. We’ve not flip flopped on anything financial yet this year, but we’re still early in the year. 🙂

    • It is still early. We could have a couple more flip-flops before it’s all done. This is kind of new territory, but I certainly have some great plans for the 401k this year.

  8. It’s a tough decision but I see how this works for you. I for one will be glad when our mortgage is gone shortly. Then all monies can be directed towards investments, college and retirement. I very much like the idea of a simplified financial life with no debt to manage.

  9. No need to be in a rush to pay off the mortgage when the interest rate is so low. I’m sure there are many other places you can invest your money. As for your husband’s pension, it’s great that he enjoys his job. I will have a pension at 55 also which is a long ways away. The pension is pretty awesome, but I’d love to retire before that. Not sure I’d want to give up that pension though as it would be deeply reduced. That’s why they call it a golden handcuff I guess.

  10. That makes sense. I think people need to constantly evaluate their goals because life changes constantly!! I haven’t had any major changes this year from my original plan, except that I need to reel in the spending I’ve been doing in Jan.

  11. I don’t know if we’ve necessarily flip-flopped to change any action, but we have been quite indecisive about some financial choices and put off implementing decisions if we weren’t confident. I think you’re making a good choice for you in not prioritizing the mortgage right now.

    • I think it’s OK to be hesitant unless you are so hesitant that you miss out on opportunities (not talking about you personally!)

  12. I like the point about the 401K offering higher returns. The concept of opportunity cost with comparing the different interest rates of our debts/investments is something I learned early that has stuck with me. I don’t pay down my mortgage early either because I know my stock market investments should beat the interest rate on the debt, so I invest in the market instead. On the other hand, I think about folks with massive interest rates on their credit cards. In their case I advise them to pay off the credit card debt first since that will exceed most investment returns.

    • Luckily, we’ve finally managed to be free of debt aside from mortgages on our home and rental properties. Credit card debt is the killer of all good financial plans.

  13. With interest rates so low, I agree paying off a mortgage does not make sense. Since I am nearing retirement, I am paying off my mortgage, but it does bother me to have all that money (approaching $500K and growing) tied up in a huge asset! It is one of the reasons I have a line of credit (currently zero balance) on my home.

    • I think I’d have to have it paid off before I quit my steady paycheck. At least you know it’s yours, and I think having a HELOC is a great way to keep peace of mind.

  14. We haven’t flip flopped anything yet….as our goal is to finish our DMP and then go from there. But the year is still young. 🙂

  15. Timely post! My husband and I would love to pay off our mortgage early and recently refinanced to a 15-year loan. He’s suggested living lean-and-mean for the next few years so we can get it paid off in half that time. While that’s attractive to me, the idea of feeling so restricted during what may be the prime of our lives is off-putting! We have good jobs and a solid emergency fund, yet I can’t help thinking some of our “extra” money should be going toward retirement. We have retirement funds and contribute to them monthly, but I really have no idea what’s going on in my accounts or what any of it means. I’m strongly considering a financial planner to help us map out a more structured plan.

  16. This is very insightful and thought out. It reinforces that everyone/every couple’s situation is unique. If even one variable in your situation was different for another couple, say the other couple’s husband hated his job, they may come to a different conclusion and that’s okay. Thanks for sharing.

  17. We know our current home isn’t our forever home so we’re not trying to pay it down fast. We are however saving for a down payment on our next place and/or a rental property (we haven’t decided which one yet-that will depend on if we stay in this area or not). I think it’s smart to keep your options open with be financial decisions. What might seem like the best course of action now, might feel like a horrible idea 5 years from now.

  18. This year I’ve set myself some pretty tight financial goals (to keep me motivated) however a few weeks ago I realized I was already falling a little behind. My plan was to sit down when I have a few hours to spare and modify the plan as necessary (or find a solution!).

    Then, as it turns out, I got a tax refund that not only brought my finances back to where I wanted them but even took them over the goal I’d set myself for this point in 2014. To say I’m a happy bunny would be an understatement!

  19. Thank you for sharing. It’s very useful. Hope to hear more from you.

  20. I also maintain my mortgage and it is covered by rentals and the rate is quite low.

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